Over 700 APAs pile up with the earnings tax division

Functions for agreements aimed toward stopping tax disputes between multinational corporations and Indian authorities have piled up on the tax workplace owing to covid-19 disruptions.

Round 700 are pending, however regardless of the seemingly excessive odds, the central board of direct taxes (CBDT) hopes to clear a file variety of these agreements, known as advance pricing agreements (APAs), in 2022-23. A complete of 62 APAs have been signed and cleared in 2021-22 and 31 in 2020-21. Of the 62 APAs in FY22, round 30 have been signed in March alone.

A authorities official mentioned website visits couldn’t happen because of the covid-19 restrictions, which led to circumstances piling up. “The APA circumstances have piled up and could possibly be near 700 odd circumstances. We misplaced shut to 6 months final 12 months attributable to covid-19 restrictions. Nevertheless, the method has picked tempo. We might see a file variety of APAs get signed this 12 months. The final excessive was 88 circumstances in 2016-17,” mentioned the official.

APAs search to supply certainty to multinational corporations in respect of the switch value of the cross-border transactions undertaken by these corporations with their group entities. The agreements are made upfront between a taxpayer and the tax authority on pricing transactions between associated events.

In easy phrases, the switch value of products and companies transacted between group entities is agreed upon upfront by the tax authorities and the taxpayers to forestall any disputes later. APAs present certainty to the corporate working in India for a most of 9 years (potential 5 years and 4 roll-back years).

Vijay Iyer, associate and nationwide chief, Switch Pricing, EY India, mentioned, “APAs picked tempo in March after which it has slowed down once more. We hope that they’ll decide up once more quickly. With 62 APAs signed final 12 months, at that tempo, it should take almost 10 years to clear the backlog, which isn’t good for tax certainty.”

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He identified that a number of structural modifications have been wanted, together with elevated manpower. At present, there are 4 commissioners and 4 joint commissioners. “We want extra joint commissioners. A pyramid construction is required for quicker clearance,” mentioned Iyer. In keeping with him, APAs give confidence to traders to increase operations in view of the non-adversarial tax regime.

Akhilesh Ranjan, a tax coverage adviser at PwC India, identified that APAs are the cornerstone of a tax coverage constructed round predictability and certainty. “Trying on the giant stock of pending APA functions, I believe it’s time for the CBDT to enhance the APA workforce,” he added.

The 62 agreements in 2021-22 embody 13 bilateral APAs and 49 unilateral APAs. With this, the whole variety of APAs for the reason that inception of the APA programme has gone as much as 421. The scheme got here into impact in August 2012.

“The largest benefit of such agreements is that companies get certainty from a switch pricing perspective and would not have to face detailed audits on the identical transactions 12 months after year- for the interval of the settlement,” mentioned Neeru Ahuja, associate with Deloitte India. Queries emailed to CBDT remained unanswered until press time.

Amit Maheshwari, a tax associate at AKM International, a tax and consulting agency, mentioned that getting into into APAs will give companies a degree of consolation about their transactions, whereas, with out APAs, litigation could go up. “Whereas steps are taken to clear the pending APA functions, the division might additionally make the secure harbour norms extra liberal in order that extra companies go for this selection and reduces the executive workload of the division,” he mentioned.

APAs could possibly be a unilateral settlement between the corporate and Indian tax authorities or a bilateral settlement involving a international nation.


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